Stakeholders of Compensation Management

Management of compensation is a dynamic and complex issue. Compensation ambient globalization of economy is not limited to payment made by organizations to employees for their work, facilitated by labour market and state laws relating to compensation. In today’s organizational set up and with increasing reliance on human resources as  a source of competitive set up and with increasing reliance on human resources as a source of competitive advantage, compensation is more than a mere organization to employee transaction process. Therefore, compensation is a system with multiple stakeholders.



Organization: Organization is the prime stakeholder of compensation management. Organization pays employees not only compensate them for the work they perform but also to motivate employees to improve their performance, contributions and productivity for attaining organizational goals and objectives effectively. Compensation is key to effective management of human resources and is central to the existence of organizations. Without proper compensation, employees will not be motivated to perform to their best, which will adversely affect organizational efficiency and effectiveness.

Manager: Managers play a critical role in supervising and guiding employees efforts and outcomes. They motivate and appraise performance of employees regularly and recommend compensation increases to employees. If managers are incompetent or biased, then their judgments will be poor and employees will be demoralized for not getting appropriate compensation. Therefore, managers through compensation review raise performance bar of employees and ensure their productivity and retention in the organization.

Employee: Employees work for meeting basic needs of life as well as for getting a sense of satisfaction and achievement from the work they perform. If employees do not accept the compensation offered by an organization, managers cannot get work completed through employees. Moreover, if an employee perceives his compensation as low as compared to market rates or peer groups or as per his perception of self-worth, then he will develop a discontent or stress within himself and will look for jobs in other organizations to get better compensation. Therefore, employees are a central stakeholder of compensation management without whom compensation management would cease to exist.

Labour Market: Labour market refers to the place where people where eligible for employment seek out jobs. In classical economics, compensation has been held to be the result of gap in demand and supply of workforce. The relation between supply and demand in the labour market may in certain situations affect compensation rates; the development of the price level, changes in the standard of living of the employees, changes in income distributing, the changes in productivity and other economic factors may directly influence the compensation claims of organizations and the results of negotiations. Thus labour market plays a significant role in compensation management.

When there are more job seekers than the number of jobs available (i.e.; more supply than demand), compensation levels get depressed as individuals are competing to work for lower compensation. On the other hand, if there are more jobs than job seekers, compensation levels get pushed up as organizations compete among themselves to hire the available individuals.

State: The state regulates compensation levels and changes in compensation in the economy at large both directly through minimum wages, equal remuneration legislate and indirectly through policies such as social as security and statutes affecting union organization and union bargaining power. Government regulates compensation through social welfare legislation to protect the rights of employees as citizens from explorations of the employers. During the period of industrialization there were not enough labour protective measures to secure labour from exploitative practices of the capitalists’. But with onset of democracy, state is responsible to secure the welfare of its citizen though various regulations on compensation like Minimum Wages Act, 1948, Payment of Wages Act, 1936, Equal Remuneration Act, 1976, Payment of Bonus Act, 1965, Apprentices Act, 1961 etc. Minimum Wages Act, 1948 prescribes that in specified categories and industries, organization shall be bound to pay minimum wages to unskilled, semi-skilled, and skilled labour and clerical and non-supervisory employees as notified by the state government from time to time. No organizations can employees as notified by the state government from time to time. No organization can employ people below minimum wages irrespective of its ability to pay. Apprentices act, 1961 specifies engagement of trainees in specified trade on a specified stipend.

Trade union: Trade unions are repetitive bodies of employment with an objective of obtaining maximum benefits from employers for the benefit of employees as a class. Employees as individuals , can negotiate their compensation independently with their organization but to a limited extent. Employees working at lower level with replacement skills find it difficult to bargain compensation with employers of their own. It is through collective bargaining that individuals stand to gain much more than they would otherwise, if left to themselves. Through the process of collective bargaining, compensation for different classes of employees is mutually agreed at unit/organization, industry and national level. Organizations with strong trade unions tend to bargain hard with employers and try to get maximum compensation and benefits for the employees.

Customers: Davis and Landa (2000) observed that “customer loyalty” the outcome of protected and enhanced shareholder value, are each dependent upon the business gaining the commitment and loyalty of its employees”. Thus, compensation employees well can result in better customer service and retention. Therefore organization with high customer orientation pay its employees handsome compensation so that they are happy and motivated and render quality, efficiency and responsive services to customer.

However, some large organization’s compensation programmers’ are designed to keep costs down and in the process, because of their economic influences and market share it drives down prevailing compensation rates in the communities in which operates. These organization often demand cost data from their supplies so that they can show them how to reduce costs. For many of them, this means lowering labour costs to reduce prices of products sold by these large organizations. Thus compensation of employees can get adversely affected.

HR-Professionals 12 Compensation 12


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